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In re Marriage of Kile

Court of Appeals of Washington, Division 3

April 9, 2015

In the Matter of the Marriage of Jeannie Kile, Respondent, and Gordon B. Kendall, Appellant

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[Copyrighted Material Omitted]

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Appeal from Spokane Superior Court. Docket No: 11-3-02969-5. Judge signing: Honorable Maryann C Moreno. Judgment or order under review. Date filed: 02/22/2013.

Craig A. Mason (of Mason Law ), for appellant.

Martin L. Salina (of Salina, Sanger & Gauper ), for respondent.

Authored by Laurel H. Siddoway. Concurring: George B. Fearing, Robert E. Lawrence-Berrey.

OPINION

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Siddoway, C.J.

[186 Wn.App. 868] [¶1] In this appeal from the judgment dissolving his marriage to Jeannie Kile, Gordon Kendall challenges the trial court's characterization of farm ground and equipment that Ms. Kile acquired during the marriage as " a married person dealing in her sole and separate property," but that was used in a farming operation that he thereafter ran. He also challenges the court's refusal to award him spousal maintenance and attorney fees.

[¶2] Substantial evidence supports Ms. Kile's position that her late father wished to lease his farm ground and equipment to her as her separate property and that Mr. Kendall was on notice for over 20 years that leases executed by his father-in-law were explicitly to Ms. Kile alone. Yet it is undisputed that lease terms offered by Ms. Kile's father [186 Wn.App. 869] were fair market terms supported by consideration; that Ms. Kile had no separate assets, employees, or credit with which she could independently perform the lessee's obligations at the time she entered into the leases; and that Mr. Kendall and the community necessarily bore burdens and risks in performing the lease obligations. While Ms. Kile's father made gifts to his daughter in the form of payments to third parties and forgiveness of debt that the court could legitimately treat as separate property and that supported the separate character of 317 acres of farm ground purchased by Ms. Kile (at least at the inception of that purchase), the court erred by failing to recognize that the community had a material interest in the farming operation and its assets.

[¶3] We find no abuse of discretion by the court in denying Mr. Kendall spousal maintenance or an award of attorney fees. We deny Mr. Kendall's motion for relief from the deadline for requesting attorney fees on appeal. Because the trial court's distribution of the parties' assets and liabilities might have been different had the farming operation assets been correctly characterized, we reverse the property award and liability allocation portions of the decree and remand for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

[¶4] Jeannie Kile and Gordon Kendall separated in December 2011, after almost 28 years of marriage. The parties have two adult children. For most of their married life, Mr. Kendall farmed 1,517 acres of ground in Thornton, Washington, that was either leased or titled in Ms. Kile's name as her separate property. The principal issue in their divorce was the separate or community character of the farming operation.

[¶5] As Ms. Kile's lawyer explained to the trial court in opening statement, his client's father, Lester Kile, had farmed considerable acreage in Thornton for years, until [186 Wn.App. 870] losing half of the property to his son in a " tough divorce" from Ms. Kile's mother in which the son intervened and successfully claimed a contractual interest in his parents' property. Report of Proceedings (RP) at 13. Mr. Kile was left owning 1,200 acres. As explained by Ms. Kile's lawyer and later demonstrated by evidence, Mr. Kile was " very, very interested and desirous--it was his hope that the farm would be left to Jeannie Kile ... and her children, Cody and Carly." Id.

[¶6] In 1988, Mr. Kile approached his daughter and offered to lease his farm ground to her on a crop share basis: Ms. Kile would pay her father one-third of the proceeds of crops grown as rent and retain two-thirds as operator. This was a standard crop sharing rate for dryland wheat farming in Eastern Washington. It was anticipated that Mr. Kendall would actually run the farm operations. But Mr. Kile insisted on leasing the ground to his daughter as her separate property. The lease agreements prepared for execution by Ms. Kile, Mr. Kile, and his farming corporation, Kile Farms Inc., identified the ultimate lessee as " JEANNIE KILE KENDALL, a married person dealing in her sole and separate property." Clerk's Papers (CP) at 9.

[¶7] At the time the lease was offered, both Mr. Kendall and Ms. Kile were salaried employees of a former brick-and-mortar retailer, Montgomery Ward. Initially Mr. Kendall worked on the farm part time with his father-in-law, learning the farm operation. In

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1990 Mr. Kendall left his job at Montgomery Ward to work full time on the farm.

[¶8] At or about the same time that he leased his farm ground to Ms. Kile, Mr. Kile agreed to lease his equipment to her with an option to purchase. In a perpetuation deposition admitted at trial, Mr. Kile testified that there had been a written agreement setting the payments required, that the lease was solely with his daughter, and that Mr. Kendall was " not on there at all." CP at 378. Both Ms. Kile and her father testified that over the term of the equipment lease, Mr. Kile was paid most of what he was [186 Wn.App. 871] owed, but if Ms. Kile and Mr. Kendall were " hard up" her father would " give them some slack" and he ultimately forgave some of the payments due under the equipment lease. CP at 379. Mr. Kile estimated that he accepted " around [$]50,000" less than what he was owed as " a forgiveness to Jeannie Kile." Id.

[¶9] In 1989 two parcels of farm ground that Mr. Kile did not own but that he had leased and farmed for 30 years were offered to him for purchase by the owners, Everett and Sally Flood. Mr. Kile encouraged Ms. Kile to purchase the parcels, which totaled 317 acres. He offered to make the required down payments. Ms. Kile testified that " Dad and I decided this would be a good deal and a way to keep it in the family." RP at 103. The real estate contracts and notices of the contracts identified the purchaser of the properties as " Jeannie Kile, as her separate property," or " JEANNIE KILE KENDALL, wife of Gordon B. Kendall ... dealing in her own separate property." CP at 20, 25. Contemporaneous with Ms. Kile's purchase of the parcels, Mr. Kendall executed a quitclaim deed " to release community property interest," to which was attached copies of the Flood sale documentation. Mr. Kile paid a total down payment of $40,000 on the parcels. According to Mr. Kile, he gifted the down payments to his daughter " with the intent that [the parcels] would be her separate property." CP at 414. Mr. Kendall farmed the Flood land just as he farmed the land that Ms. Kile leased from her father.

[¶10] Business and accounting records for the farms reflected its operation as Ms. Kile's sole proprietorship. A separate bank account was maintained for farm operations. Ms. Kile was listed as the operator of farming operations with the United States Farm Service Agency (FSA) office, and all farm subsidy checks were made payable to her alone. During the marriage, all revenue generated from farming operations was deposited into the farm account, and all farm expenses were paid out of the farm account.

[¶11] Ms. Kile issued forms W-2 to Mr. Kendall reflecting the wages he paid himself; they identified her as the [186 Wn.App. 872] " employer" and Mr. Kendall as an " employee." CP at 71. Ms. Kile's earnings from her employment were deposited to a different, community bank account, as were the wages that Mr. Kendall paid himself from farm operations.

[¶12] Despite Ms. Kile's being reflected on business records as the owner, employer, and operator of the farm, Mr. Kendall was its hands-on operator, at least following the initial years that he worked with his father-in-law and until the parties' son became active in farm operations many years later. Although Ms. Kile was listed as the farm operator with the FSA, she executed a power of attorney that authorized Mr. Kendall to file reports and otherwise deal with the FSA on her behalf. Mr. Kendall testified that Ms. Kile never worked at the farm. She did not disagree; her own evidence was that she had a full-time job elsewhere, and she offered no evidence that she expended any community labor in the farming operation.

[¶13] Shortly after Ms. Kendall filed for divorce, her father sent a notice terminating the farm lease agreement, expressing dissatisfaction with Mr. Kendall's performance and asking that Ms. Kile turn over the farming operation to the parties' son, Cody Kendall. Ms. Kile's lawyer conducted a perpetuation deposition of Mr. Kile on January 24, 2012. Mr. Kile died on March 30, 2012, leaving his farm ground in a trust in which Ms. Kile and Cody have beneficial interests.

[¶14] In the three-day dissolution trial conducted in September 2012, Mr. Kendall did not claim any interest in Ms. Kile's inheritance from her father, but he did claim that the operation of the farm had been a community endeavor and that the assets purchased from

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farm revenues--the farming equipment and the 317 acres of farm ground purchased from Everett and Sally Flood--were therefore community property. Ms. Kile argued that the farm and all of the farming assets whose acquisition could be traced to farm profits were her separate property.

[186 Wn.App. 873] [¶15] Ms. Kile contended at trial that Mr. Kendall's historical operation of the farm was inconsequential in determining the character of the property because he was paid a reasonable wage from the farm account. The evidence on this score consisted of Ms. Kile's testimony that her husband was " paid fairly" for his efforts, RP at 89, and Mr. Kendall's deposition testimony that the farm paid him a reasonable wage--although elsewhere in his deposition, when he was asked, " Did you pay yourself fairly?" he answered, " That's a relative question. To be honest with you, I think the family was compensated fairly for the services that I provided." RP at 485, 510. No evidence of market wages or benefits for a person of Mr. Kendall's experience performing custom dryland wheat farming in Eastern Washington was presented.

[¶16] A summary of Mr. Kendall's W-2 earnings revealed that between 1991 and 2010, he drew gross wages of between $22,209 and $48,500, with an exception in 2008, when he drew $60,000. When asked how Mr. Kendall's monthly wage was determined, Ms. Kile testified, " He decided that he had -- he was managing, again, the farm. Basically I trusted him to do what ...


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